Financial planning in your 20s and 30s

Financial planning looks different at every age and stage in your life. Here’s what you should be focused on in your 20s and 30s as you’re finishing college, kicking off your career or thinking of starting a family.

Focus 1: Create a financial roadmap

Many young people think that financial planning is something they don’t have to worry about until they’re older, but that’s a mistake! Creating and adhering to a financial roadmap when you’re young will help ensure you and your family’s financial well-being in the long run. Consider that $3,500 invested annually when you’re 25, with an annual return of six percent, can grow to over $615,000 by the time you’ve reached full retirement at age 67, while the same amount invested annually with the same annual return when you’re 40 will grow to only approximately $223,000.

• To create a financial roadmap, consider working with a financial adviser to:
• Identify your current and long-term financial goals
• Identify ways you’ll pursue those goals by prioritizing how you will save money
• Research role models whose financial behavior you might like to emulate
• Create a monthly budget
• Review your investment allocation
• Set milestones to keep you accountable

If you get married, be sure to revisit your financial roadmap as a couple, since joint goals can be different than those of an individual. Finding common ground to build from will be crucial in creating a successful financial life.

Focus 2: Reduce debt

As Benjamin Franklin said, “An investment in knowledge pays the best interest.” But after that investment in knowledge, many people have student loans or college-related credit card debt to repay! Create a loan payoff plan that’s in line with your budget. Some ways to expedite debt payoff are to consolidate debt, pay more than the monthly requirement and use raises at work to increase your payment.

Reducing debt and keeping up with monthly payments will help you establish good credit when you’re young that you’ll build upon throughout your life. And remember to use credit cards wisely, paying off balances monthly.  

Focus 3: Save for the future

The “future” may feel a long way off, but now’s the time to start saving for maximum benefit.

Save for emergencies

Life is full of unexpected surprises like losing a job, incurring damage to your home or vehicle or having an unexpected health problem. That’s why it’s important to set aside an emergency fund with at least three months of living expenses. By the time you’re in your 30s, aim to have six months’ worth of living expenses saved up. This will help make any potential changes feel less stressful.

Save for retirement

Your first consideration should be establishing and contributing to a retirement plan. If your retirement plan is matched by your employer, we recommend contributing the maximum amount possible to gain the largest benefit. Don’t leave money on the table: If your employer will match up to five percent, then contribute a minimum of five percent. Otherwise, you’re walking away from free money! This year, employees are allowed to contribute up to $18,500 of pre-tax income to a 401(k). Don’t forget to increase your retirement contributions as your salary increases.

Save for major purchases

Now is also the time to save for major purchases, like a home or car. Some ways to save include:

• Sticking to your budget
• Creating automatic bank transfers to a savings account
• Creating short-term savings goals that can contribute to your larger, loftier goals
• When you receive a bonus, raise or windfall carefully consider your current savings scorecard and immediately plan to save or invest at least half of the money. Whatever is left over, enjoy!
• Abiding by the 24-hour rule for purchases to evaluate whether you really want something before you buy it
• Cutting any nonessential expenses
• Checking your credit report once per year to ensure there aren’t any faulty charges—and to know what you’re eligible for. Great credit can save you money on car loans and more.
• Setting your bills to auto-pay so you’ll never incur late charges
• Taking advantage of discounts offered by your employer and other sources
• Creating a spending limit on gifts for all those weddings and baby showers you’ll be attending
• Bringing your lunch to work
• Keeping up with preventative healthcare so that you incur fewer, costlier health surprises later
• Comparison shopping for home and auto insurance each year

Save for college

College is expensive; planning should start before the baby shower. In fact, contributing to a college fund is a great way for friends and family to celebrate the new bundle of joy. Consider establishing a 529 plan. Also known as a Qualified Tuition Program, a 529 plan is a tax-advantaged way to save for your child’s future college expenses. It’s sponsored by a state, state agency or educational institution. There are plans available in all 50 states and the District of Columbia—but you can use any state’s 529 and funds may be used at almost any school in the country. Read more about 529 plans >

Your 20s and 30s is an exciting stage of your life - wrapping up your formal education, taking on the challenges of professional life and considering starting a family. Creating and following a financial roadmap is essential during this time and will be the key to setting your future financial trajectory. We can help. Contact us today.